Saudi Arabia mulls setting up new SWF

Saudi Arabia is considering establishing a sovereign wealth fund (SWF) that could remove responsibility for investing the Persian Gulf country’s billions of dollars of oil surpluses away from its central bank.

The proposal is currently being considered by Saudi’s legislative Shoura Council, according to regional newspaper Asharq al-Awsat, and if rubber-stamped could create an SWF to rival the likes of the Abu Dhabi Investment Authority (ADIA), which currently has about US$773 billion in assets.

Saad Mareq, head of the Shoura Council’s financial committee, said that the proposed National Reserve Fund (NRF) would “guarantee the financial stability of the kingdom”.

Responsibility for investing receipts from Saudi’s oil exports currently lies with the Saudi Arabian Monetary Agency (SAMA), or central bank. Of SAMA’s estimated $730 billion in assets, two-thirds are reserved for treasury requirements in cash or short-term securities or deposits, according to the Sovereign Wealth Center. The remaining third is allocated to a low-risk investment strategy, with around 55% invested in low-yielding government securities.

Asharq al-Awsat said that the proposed NRF would launch with capital equalling 30% of budget surpluses accumulated in recent years. Last year, the Saudi government recorded a surplus of about 206 billion Saudi Arabian riyals ($55 billion). The newspaper added that a president of ministerial rank would lead the NRF.

A draft law for the SWF is due to be discussed by Saudi lawmakers early this week.

The country is under pressure to generate new streams of income, with the International Monetary Fund last year warning that it could fall into deficit by 2016 if its spending continued to rise.

Saudi Arabia is currently the only the country in the region to lack a dedicated SWF. Others in the Arab world include the Kuwait Investment Authority, with $410 billion in assets, and the Qatar Investment Authority, with $170 billion.

The world’s largest SWF by assets is Norway’s Government Pension Fund, with approximately $878 billion in assets.